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123 Test Bank for Financial and Managerial Accounting 11th Multiple Choice Questions - Page The following are examples of external users of accounting information except government customers creditors managers Which of the following is true in regards to a Limited Liability Company? Makes up 10% of business organizations in the United States Combines the attributes of a partnership and a corporation Provides tax and liability advantages to the owners All are correct Select the type of business that is most likely to obtain large amounts of resources by issuing stock partnership corporation proprietorship none of these Most businesses in the United States are proprietorships partnerships corporations separate entities Within the United States, the dominant body in the primary development of accounting principles is the American Institute of Certified Public Accountants (AICPA) American Accounting Association (AAA) Financial Accounting Standards Board (FASB) Institute of Management Accountants (IMA) All of the following are general-purpose financial statements except balance sheet income statement retained earnings statement cash budget Countries outside the United States use financial accounting standards issued by the LLC SEC IASB GAAP The objectivity concept requires that business transactions must be consistent with the objectives of the entity the Financial Accounting Standards Board must be fair and unbiased in its deliberations over new accounting standards accounting principles must meet the objectives of the Security and Exchange Commission amounts recorded in the financial statements must be based on independently verifiable evidence Denzel Jones is the major stockholder of Crystal Cleaning Company, a small corporation Recently, Denzel received $18,000 of dividends from Crystal Cleaning After receiving the dividends, he contributed $14,000, in his name, to Habitat for Humanity The contribution of the $14,000 should be recorded on the accounting records of which of the following entities? Crystal Cleaning and Habitat for Humanity Denzel Jones' personal records and Habitat for Humanity Denzel Jones’ personal records and Crystal Cleaning Denzel Jones’ personal records, Crystal Cleaning, and Habitat for Humanity The Sarbanes-Oxley Act of 2002 prohibits employment of auditors by their clients for what period after their last audit of the client? indefinitely one year two years none of these Which of the following is not a role of accounting in business? to provide reports to users about the economic activities and conditions of a business to personally guarantee loans of the business to provide information to other users to determine the economic performance and condition of the business to assess the various informational needs of users and design its accounting system to meet those needs The initials GAAP stand for General Accounting Procedures Generally Accepted Plans Generally Accepted Accounting Principles Generally Accepted Accounting Practices For accounting purposes, the business entity should be considered separate from its owners if the entity is a corporation a proprietorship a partnership all of these Donner Company is selling a piece of land adjacent to their business An appraisal reported the market value of the land to be $120,000 The Focus Company initially offered to buy the land for $107,000 The companies settled on a purchase price of $115,000 On the same day, another piece of land on the same block sold for $122,000 Under the cost concept, what is the amount that will be used to record this transaction in the accounting records? $107,000 $115,000 $120,000 $122,000 Which of the following best describes accounting? records economic data but does not communicate the data to users according to any specific rules is an information system that provides reports to users regarding economic activities and condition of a business is of no use by individuals outside of the business is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements Which of the following are guidelines for behaving ethically? I.Identify the consequences of a decision and its effect on others; II.Consider your obligations and responsibilities to those affected by the decision; III.Identify your decision based on personal standards of honesty and fairness I and II II and III I and III I, II, and III An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a proprietorship corporation partnership governmental unit Which type of accountant typically practices as an individual or as a member of a public accounting firm? Certified Public Accountant Certified Payroll Professional Certified Internal Auditor Certified Management Accountant Which of the following groups are considered to be internal users of accounting information? Employees and customers Customers and vendors Employees and managers Government and banks Which of the following would not normally operate as a service business? pet groomer restaurant lawn care company styling salon Which of the following is the best description of accounting’s role in business? Accounting provides stockholders with information regarding the market value of the company’s stocks Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company Accounting provides creditors and banks with information regarding the credit risk rating of the company Accounting is not responsible for providing any form of information to users That is the role of the Information Systems Department Which of the following is a manufacturing business? Amazon.com Wal-Mart Ford Motors Delta Airlines Equipment with an estimated market value of $55,000 is offered for sale at $75,000 The equipment is acquired for $20,000 in cash and a note payable of $40,000 due in 30 days The amount used in the buyer's accounting records to record this acquisition is $55,000 $60,000 $20,000 $75,000 Managerial accountants would be responsible for providing which of the following? Tax reports to government agencies Profit reports to owners and management Expansion of a product line report to management Consumer reports to customers Which of the following is not a certification for accountants? CIA CMA CISA All are certifications The business entity concept means that the owner is part of the business entity an entity is organized according to state or federal statutes an entity is organized according to the rules set by the FASB the entity is an individual economic unit for which data are recorded, analyzed, and reported Which of the following concepts relates to separating the reporting of business and personal economic transactions? cost concept unit of measure concept business entity concept objectivity concept Financial reports are used by management creditors investors all are correct Which one of the following is the authoritative body in the United States having the primary responsibility for developing accounting principles? FASB IRS SEC AICPA Due to various fraudulent business practices and accounting coverups in the early 2000’s, Congress enacted the Sarbanes-Oxley Act of 2002 The Act was responsible for establishing a new oversight board for public accountants called the Generally Accepted Accounting Practices for Public Accountants Board Public Company Accounting Oversight Board Congressional Accounting Oversight Board none of these Which of the following is not a characteristic of a corporation? Corporations are organized as a separate legal taxable entity Ownership is divided into shares of stock Corporations experience an ease in obtaining large amounts of resources by issuing stock A corporation’s resources are limited to its individual owners’ resources Two common areas of accounting that respectively provide information to internal and external users are forensic accounting and financial accounting managerial accounting and financial accounting managerial accounting and environmental accounting financial accounting and tax accounting systems Which of the following group of companies are all examples of a merchandising business? Delta Airlines, Marriott, Gap Gap, Amazon, NIKE GameStop, Sony, Dell GameStop, Best Buy, Gap Which of the items below is not a business entity? entrepreneurship proprietorship partnership corporation 73 Free Test Bank for Financial and Managerial Accounting 11th Edition by Warren Multiple Choice Questions - Page Revenues are reported when a contract is signed cash is received from the customer work is begun on the job work is completed on the job If total liabilities decreased by $55,000 during a period of time and owner’s equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is $115,000 increase $5,000 increase $5,000 decrease $115,000 decrease The year-end balance of the retained earnings account appears in both the retained earnings statement and the income statement only the retained earnings statement both the retained earnings statement and the balance sheet both the retained earnings statement and the statement of cash flows The monetary value charged to customers for the performance of services sold is called a(n) asset net income capital revenue Ramos Repair Company paid $750 in dividends to its stockholders How does this transaction affect Ramos Repair Company’s accounting equation? Increase Assets (Accounts Receivable) and decrease Assets (Cash) Decrease Assets (Cash) and decrease Stockholders’ Equity (Dividends) Decrease Assets (Cash) and decrease Liabilities (Accounts Payable) Increase Assets (Cash) and decrease Stockholders’ Equity (Dividends) Liabilities are reported on the income statement retained earnings statement statement of cash flows balance sheet Debts owed by a business are referred to as accounts receivables assets owner’s equity liabilities make a sales offer sell goods for cash receive cash for services to be rendered later pay for supplies How does receiving a bill to be paid next month for services rendered affect the accounting equation? assets decrease; stockholders’ equity decreases assets increase; liabilities increase liabilities increase; stockholders’ equity increases liabilities increase; stockholders’ equity decreases How does paying a liability in cash affect the accounting equation? assets increase; liabilities decrease assets increase; liabilities increase assets decrease; liabilities decrease liabilities decrease; stockholders’ equity increases A business paid $7,000 to a creditor in payment of an amount owed The effect of the transaction on the accounting equation was to increase one asset, decrease another asset decrease an asset, decrease a liability increase an asset, increase a liability increase an asset, increase stockholders’ equity Four financial statements are usually prepared for a business The statement of cash flows is usually prepared last The retained earnings statement (RE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement In what order are these three statements prepared? I, RE, B B, I, RE RE, I, B B, RE, I Gomez Service Company paid its first installment on a note payable in the amount of $2,000 How will this transaction affect the accounting equation? Increase Liabilities (Notes Payable) and decrease Assets (Cash) Decrease Assets (Cash) and decrease Stockholders’ Equity (Note Payable Expense) Decrease Assets (Cash) and decrease Assets (Notes Receivable) Decrease Assets (Cash) and decrease Liabilities (Notes Payable) The debt created by a business when it makes a purchase on account is referred to as an account payable account receivable asset expense payable How does the purchase of equipment by signing a note affect the accounting equation? assets increase; assets decrease assets increase; liabilities decrease assets increase; liabilities increase assets increase; stockholders’ equity increases The asset created by a business when it makes a sale on account is termed accounts payable prepaid expense unearned revenue accounts receivable Allen Marks is the sole stockholder of Great Marks Company As of the end of its accounting period, December 31, 2011, Great Marks Company has assets of $940,000 and liabilities of $300,000 During 2012, Allen Marks purchased an additional $65,000 of capital stock and received $45,000 in cash dividends from the business What is the amount of net income during 2012, assuming that as of December 31, 2012, assets were $995,000, and liabilities were $270,000? $ 65,000 $ 50,000 $105,000 $370,000 Assets are always greater than liabilities either cash or accounts receivables the same as expenses because they are acquired with cash financed by owners and/or creditors Land, originally purchased for $20,000, is sold for $75,000 in cash What is the effect of the sale on the accounting equation? assets increase $75,000; stockholders’ equity increases $75,000 assets increase $55,000; stockholders’ equity increases $55,000 assets increase $75,000; liabilities decrease $20,000; stockholders’ equity increases $55,000 assets increase $20,000; no change for liabilities; stockholders’ equity increases $75,000 If stockholders wanted to know how money flowed into and out of the company, what financial statement would they use? income statement statement of cash flows balance sheet none of these Which of the following is not a business transaction? Erin Adams receives stock in exchange for depositing $15,000 in a bank account in the name of Erin’s Lawn Service Erin’s Lawn Service provided services to customers earning fees of $600 Erin Adams purchased hedge trimmers for her lawn service, agreeing to pay the supplier next month Erin Adams pays her monthly personal credit card bill Cash investments made by stockholders in exchange for capital stock in a business are reported on the statement of cash flows in the financing activities section investing activities section operating activities section supplemental statement Expenses are recorded when cash is paid for services rendered a bill is received in advance of services rendered assets are used in the process of earning revenue none of these Declaring and paying cash dividends increase expenses decrease expenses increase cash decrease stockholders’ equity Goods purchased on account for future use in the business, such as supplies, are called prepaid liabilities revenues prepaid expenses liabilities The unit of measure concept is only used in the financial statements of manufacturing companies is not important when applying the cost concept requires that different units be used for assets and liabilities requires that economic data be reported in yen in Japan or dollars in the United States The assets section of the balance sheet normally presents assets in alphabetical order order of largest to smallest dollar amounts in the order that they will be converted into cash or used in operations any order Earning revenue increases assets, increases stockholders’ equity increases assets, decreases stockholders’ equity increases one asset, decreases another asset decreases assets, increases liabilities Which of the following financial statements reports information as of a specific date? income statement retained earnings statement statement of cash flows balance sheet The accounting equation may be expressed as Assets = Equities - Liabilities Assets + Liabilities = Owner’s Equity Assets = Revenues - Liabilities Assets - Liabilities = Owner’s Equity Which of the following is not an asset? investments cash inventory owner’s equity The assets and liabilities of the company are $175,000 and $40,000, respectively Stockholders’ equity should equal $215,000 $135,000 $175,000 $40,000 The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) prior period statement retained earnings statement income statement balance sheet Which of the following is not true of accounting principles? Financial accountants follow generally accepted accounting principles (GAAP) Following GAAP allows accounting information users to compare one company to another A new accounting principle can be adopted with stockholders approval The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles All of the following statements regarding the ratio of liabilities to stockholders’ equity are true except A ratio of indicates that liabilities equal stockholders’ equity The ratio is calculated as total liabilities divided by total stockholders’ equity The higher this ratio, the better able a business is to withstand poor business conditions and pay creditors The lower this ratio is, the better able a business is to withstand poor business conditions and pay creditors True - False Questions The cost concept is the basis for entering the exchange price into the accounting records True False Expenses are assets that are used up during the process of earning revenue True False An example of an external user of accounting information is the federal government True False The basic difference between manufacturing and merchandising companies is the completion level of the products they purchase for resale to customers True False Cash dividends paid to stockholders decrease assets and increase equity True False The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing entities True False Accounting information users need reports about the economic activities and condition of businesses True False Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid True False About 90% of the businesses in the United States are organized as corporations True False The principal financial statements for a corporation are the income statement, the retained earnings statement, the balance sheet, and the budget True False No significant differences exist between the accounting standards issued by the FASB and the IASB True False The excess of revenue over the expenses incurred in earning the revenue is called capital stock True False Net income and net profit not mean the same thing True False Purchasing supplies on account increases liabilities and decreases equity True False If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000 True False An account receivable is typically classified as a revenue True False The role of accounting is to provide many different users with financial information to make economic decisions True False If a corporation had net income of $60,000 and $20,000 in cash dividends were declared and paid then the retained earnings account would increase by $40,000 True False The Sarbanes-Oxley Act prohibits CPAs from providing nonaudit investment banking services True False All financial statements are identified by the name of the business, the title of the statement, and the date or period of time True False Generally accepted accounting principles regulate how and what financial information is reported by businesses True False Proprietorships are owned by one owner and provide only services to their customers True False If total assets decreased by $30,000 during a specific period and owner’s equity decreased by $35,000 during the same period, the period's change in total liabilities was an $65,000 increase True False Some of the major fraudulent acts by senior executives started as what they considered to be small ethical lapses which grew out of control True False Two factors that typically lead to ethical violations are relevance and timeliness of accounting information True False The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners True False The balance sheet represents the accounting equation True False Paying an account payable increases liabilities and decreases assets True False The accounting equation can be expressed as Assets Liabilities = Owners’ Equity True False Only large companies such as Wal-Mart, JCP, General Motors, and the Bank of America can be organized as corporations True False The main objective of a not-for-profit business is not to make a profit True False Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management True False Revenue is earned only when money is received True False If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner’s equity was a $200,000 increase True False Receiving payments on an account receivable increases both equity and assets True False If the liabilities owed by a business total $300,000 and owner’s equity is equal to $300,000, then the assets also total $300,000 True False Owners’ rights to assets rank ahead of creditors' rights to assets True False A corporation is a business that is legally separate and distinct from its owners True False Managerial accounting information is used by external and internal users equally True False The unit of measurement concept requires that economic data be recorded in a common unit of measurement True False The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities True False A business is an organization in which basic resources or inputs, like materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers True False An income statement is a summary of the revenues and expenses of a business as of a specific date True False Proper ethical conduct implies that you only consider what's in your best interest True False A retained earnings statement reports all changes in cash for a period of time True False Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where they work True False An account receivable is a claim against a customer arising from a sale on account True False The main objective for all businesses is to maximize unrealized profits True False The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles True False An example of a general-purpose financial statement would be a report about projected price increases related to transportation costs True False ... of accounting that respectively provide information to internal and external users are forensic accounting and financial accounting managerial accounting and financial accounting managerial accounting. .. entity the Financial Accounting Standards Board must be fair and unbiased in its deliberations over new accounting standards accounting principles must meet the objectives of the Security and Exchange... entity? entrepreneurship proprietorship partnership corporation 73 Free Test Bank for Financial and Managerial Accounting 11th Edition by Warren Multiple Choice Questions - Page Revenues are reported